U.S. Industrial Policy Needed, But Elites in Both Parties Have No Answers
After decoding the Sunday New York Times' opaque front-page article on U.S. manufacturing, it becomes clear that the stunning 32% loss in factory jobs since 2000 has finally convinced President Barack Obama and some members of the Democratic Party elite to promote a highly-skilled American manufacturing industry.
But further decoding suggests that these efforts are likely to go nowhere, as Obama and his team remain strait-jacketed by their “free trade” ideology. The administration is unwilling to pressure U.S. CEOs against offshoring more jobs, reluctant to discuss U.S. firms’ loss of interest in advance training for their workers, and utterly silent about a new wave of vicious job-slashing, wage-cutting, and benefit-vaporizing by highly profitable firms like Caterpillar and GE. Indeed, Obama has celebrated those two firms for their “competitiveness.”
The only alternative that Obama offers to the rapid deterioration of America’s productive base is “insourcing” production—a supposed trend wherein American firms bring jobs back to the United States because of rising Chinese wages and transportation costs. Not only is there almost no evidence of this “trend,” but Obama’s strategy for accelerating it—creating tax breaks for firms that bring work back stateside and revoking them for offshoring firms—is far too feeble to make a difference. (GE, for example, hasn't paid any federal corporate taxes for years.)
The stakes of this inaction are immense: If current trends continue, despite a mild rise in U.S. manufacturing in recent months, America would have virtually no productive base left within a decade or so. We now find that our leading export to China—despite all of America’s industrial might and advanced technology—is, incredibly, waste paper and cardboard.
Obama’s circle of advisors, while somewhat divided, remains unwilling to push high-tech corporations—which sell a huge share of their products in the United States—to start producing here. As Sunday's front-page Times article noted:
“The U.S. has a long history of demanding that companies build here if they want to sell here, because it jump-starts industries,” said Clyde V. Prestowitz Jr., a senior trade official in the Reagan administration who helped negotiate with Japan in the 1980s. The government could also encourage domestic production of technologies, including display manufacturing and advanced semiconductor fabrication, that would nurture new industries. “Instead, we let those jobs go to Asia, and then the supply chains follow, and then R&D follows, and soon it makes sense to build everything overseas,” he said. “If Apple or Congress wanted to make the valuable parts of the iPhone in America, it wouldn’t be hard.”
To contrast the high-tech situation with a positive model of industrial policy, the Times cites the effort to entice Japan to shift a significant share of its auto production and auto supply chain to our shores in the 1980s, and wonders why a similar approach cannot be launched today. (The ferociously anti-union policies and racist hiring practices of Japanese auto firms—both emulating local U.S. firms and public officials—along with their penchant for extorting billions in “incentive" packages from America’s most impoverished states, curiously goes unexamined.)
But such an aggressive course—however seriously flawed by its anti-unionism and racism—toward foreign operations selling heavily in the United States is now unthinkable, according to Obama administration officials quoted by the Times. While the emerging economy of Brazil managed to use a combination of threats and incentives to persuade Apple supplier Foxconn—widely condemned for its inhumane treatment of Chinese workers—to begin iPhone production in Brazil, a similar approach in the United States would be derided as “protectionist.”
Further, various “free trade” agreements” like NAFTA, the World Trade Organization’s rules, and the Trans-Pacific Partnership now being negotiated constrain the United States. As the Times reported, “Taking a hard line to reduce imports of technology goods and encourage domestic manufacturing could violate international trade agreements and set off a trade confrontation.”
At the same time, corporations are loudly complaining about a shortage of U.S. workers, while ignoring the vast pools of discarded workers with high skills. "Our labor force is too expensive and poorly educated for today's market place," whined PIMCO private-equity fund owner Bill Gross.
But the shortage of technically skilled workers remains wildly overblown. The complaints serve more as a shallow pretext for increased offshoring of U.S. jobs and the importation of foreign workers to be exploited at relatively low pay in exchange for H-1B visas.
And to the extent a genuine shortage exists, CEOs are unwilling to invest in training programs or to reward workers who gain advanced skills, warns Professor Emeritus Frank Emspak of the University of Wisconsin's School For Workers. A third-generation General Electric worker for 15 years before turning to academia, Emspak has witnessed the large-scale elimination of training and apprenticeship programs by major corporations along with cutbacks in publicly-funded technical education schools.
“Training programs have been eliminated by major corporations,” he notes grimly. “Trade schools and apprenticeships are being abolished.”
At the same time, the rewards for obtaining advanced skills are rapidly falling and the risks of undertaking technical education to become a skilled machinist are falling sharply due to pervasive wage cuts. "You’d have to be crazy now to want to become a machinist,” says Emspak.
"You cannot de-link skills from the system needed to produce skilled workers and to sustain them,” Emspak adds. “You can’t separate issue of skills from employment security."
For example, even as it announces record profits and increases in executive pay, the Caterpillar Corporation has forced a lengthy strike in Joliet, Ill. As the New York Times' Steven Greenhouse recounts:
Despite earning a record $4.9 billion profit last year and projecting even better results for 2012, the company is insisting on a six-year wage freeze and a pension freeze for most of the 780 production workers at its factory here. Caterpillar says it needs to keep its labor costs down to ensure its future competitiveness. …
Caterpillar …is also demanding far higher health care contributions from its workers, up to $1,900 a year more, according to the union. The company had profit of $39,000 per employee last year.
Caterpillar’s vicious policy even departs sharply from that of capitalism’s pioneering theorist Adam Smith, who argued “the wise producer” will avoid actions that “break the bonds of common sympathy, the sense that we’re all in this together, on which the producer’s…well-being ultimately depends.” Smith further stressed the importance of decent wages: “the high price of labor,” Smith once wrote, “is the essence of public opulence.”
But “Caterpillar Capitalism” is winning out over Adam Smith. GE has repeatedly informed labor that it views $13 per hour as a competitive wage in manufacturing. Toyota's goal has become $12.64 an hour, the median wage for comparable manufacturing in Kentucky, where it has its largest plant, or $10.79 in Alabama, where it is building a new plant.
Given the elite consensus in both major parties in support of offshoring jobs, withdrawing support for training, opposing industrial policy, and tacitly accepting wage-cutting, the future for U.S. manufacturing looks bleak indeed.